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2019 (12) TMI 1228 - AT - Income TaxReopening of assessment u/s 147- estimate of diversion of profits due to modifications - HELD THAT:- AO was in possession of the relevant information and material germane to the allegation to enable him to hold prima facie belief towards escapement of income. The report of the investigation wing would constitute relevant material unless such report or information is absolutely vague or based on unspecific information. However, whether material available before AO would conclusively prove the escapement is not the concern at the stage of reopening. The information available with the AO in the instant case provides specific estimate of diversion of profits due to modifications and is thus reliable in character. Such specific nature of information is capable to grant cause or justification or a supposition that income has escaped assessment and consequently would confer jurisdiction on the AO to reopen assessment. AO has acted upon credible information coupled with underlying material to initiate the action under s.147 of the Act. The reasons recorded were based on prima facie material which, in turn, clearly indicated the relationship between the formation of belief and the reasons for such belief. The belief entertained by AO is, in our view, not arbitrary or irrational. We thus see no error on the part of the AO to exercise the powers under s.147 of the Act. Ground No.1 of assessee’s appeal concerning validity of jurisdiction under s.147 of the Act is accordingly dismissed. Additions made on account of losses shifted in/ profit shifted out from the hands of the assessee owing to modification carried out by the broker in the client code assigned to assessee and other corresponding client - HELD THAT:- Modifications within the relatives were also regarded as genuine errors by SEBI as per the aforesaid circular. The shifting of trade in the correct client code falling in the ‘Distance 1’ category, thus, cannot be regarded as any kind of alleged misuse of CCM facility. We find considerable force in the aforesaid plea of the assessee. It is quite plausible that error of such type by way of wrong punch of client code could occur as normal incident of business while entering the orders on behalf of the client by the broker. Such errors are to be recognized as genuine error even in the light of SEBI Circular. Such error in punching of trade does not call for any adverse inference. Consequently, the AO is directed to delete the losses shifted in or profits shifted out owing to modifications in client code falling in ‘Distance 1’ category as tabulated above with regard to all captioned assessees. Shifting in of losses or shifting out of profits falling in ‘Distance 2’ category - Having regard to the peculiar facts that losses have not been purchased in last few months of financial year (December 2010 to March 2011) but the losses have arisen in the very beginning of the financial year, benefit of doubt, if any, would surely lean towards the assessee in such facts. AO is thus directed to delete the adjustment in the assessed income to the extent of amount attributable to trade transactions falling in ‘Distance 2’ category of CCM. Losses arising due to CCM falling in ‘Distance 3’ category - Market Regulator SEBI has also frowned hard on such modifications. Such substantial modification in client code would naturally involve some indulgence of mind with set purpose to shift in losses/shift out profit in the hands of an interested client. Such modifications in client code, in our view, do not fall within the league of bonafide error when seen on the touchstone of preponderance of probabilities. The concerted and systematic modification in client code to the advantage of assessee is an orchestrated affair to suppress profits generated on trades. We thus decline to interfere with the action of AO with reference to losses falling in ‘Distance 3’ category. Losses resulting from client code modification falling in ‘Distance 4’ category would automatically fall in highly doubtful category as a near impossibility. The client code of one client stands substituted by an altogether modified client code. Losses resulting in the hands of the assessee from such revamp in the client code, if permitted, will obfuscate ground reality of tax escapement arising from such modifications. Such fundamental modification in the client code lacks any tangible purpose but to accommodate a willing client by the broker in wrongful indulgence. Thus, the plea of the assessee in respect of losses from modification calling in ‘Distance 4’category requires to be rejected outrightly. We thus decline to interfere with the action of Revenue in respect of losses falling in ‘Distance 4’ category. Having analysed the extent of modification distance-wise, the AO is directed to grant relief to the assessee in all captioned appeals in respect of losses attributable to ‘Distance 1’ and ‘Distance 2’ category.
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